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Australia yesterday opened the door for international private equity groups to buy up to a third of Telstra, the country’s dominant telecommunications company, as part of the divestment of its remaining 51.8 per cent stake.

Canberra is selling about A$8bn, or roughly 17 per cent of the company’s shares, in a public offering targeted mainly at Australian retail investors, and transferring its remaining shares to a special fund created to cover state pension liabilities.

The so-called Future Fund was expected to have to hold on to its Telstra stake - expected to be about a third of the company’s equity - for two years. But according to a prospectus released by the government it will now be allowed to sell shares to a cornerstone investor after just six months.

Such an investor would have to buy at least 3 per cent and then comply with a two-year selling restriction. The prospectus did not appear to put a ceiling on the stake any single investor could take.

Telstra’s bankers said the transaction could mirror a purchase by Blackstone, the buy-out firm, of a 4.5 per cent stake in Deutsche Telekom.

The opening comes as private equity firms mount several high-profile takeover offers in Australia with Kohlberg Kravis Roberts leading a A$17.3bn offer for retailer Coles Myer in what would be the country’s largest buy-out.

Nick Minchin, the finance minister, said he had not been approached by KKR concerning Telstra. He would not comment on other potential buyers.

The move to attract private equity investors came as Canberra yesterday offered a series of incentives to convince existing retail shareholders in Telstra to sign on for next month’s share sale.

Next month’s offerring is focused on the mum-and-dad investors who were the main purchasers in the two previous Telstra offerings. About 1.6m of the 20m Australians own Telstra shares and existing retail investors will get a 14 per cent yield if they buy into the latest sale, according to the government.

The sweeteners come amid ongoing tensions between Telstra, its majority shareholder in Canberra, and the competition regulator. They forced a two-hour delay in the official launch yesterday as bankers and lawyers struggled to reconcile wording in the prospectus over regulatory risks and board nominations.

Mr Minchin said the divestment was a milestone that would help free the incumbent operator from political constraints. “Telstra has spent the past 15 years fighting to become a normal corporate entity, rather than a government department and a political football,” he said. “There really is no case for a government to own all or part of a telephone company anymore.”

The sale - which is being coordinated by UBS, Goldman Sachs JBWere and ABN Amro Rothschild - includes a greenshoe option that could see it raise up to A$9.2bn.

The prospectus also allowed room for the government to issue additional shares if the sale is oversubscribed and there are not sufficient shares to cover the retail entitlement offer. That could add a few more billion dollars, although Terry Campbell, chairman of Goldman Sachs in Australia, described such a scenario as ”not probable.’’

Even at A$8bn, the share sale will be the largest in Australia since the government last sold shares in Telstra in 1999 as well as the biggest public offering in the telecoms sector since France Telecom in September 2004.